PPO- Economic Policy Lesson

Economic Policy Lesson

Our government plays a dual role in our nation's economy. It measures the economic status of the nation and then develops measures to keep the economy healthy. There are agencies who help compile information on the state of the economy each year. They include the Department of Labor, the Congressional Budget Office, and the Executive Office of the Council of Economic Advisers. Each of the agencies use tools to obtain vital statistics.

Tools used by Government Agencies to obtain vital statistics: -The Unemployment Rate shows the percentage of people who are actively seeking a job and can't get one. -The consumer Price Index (CPI) is the market basket of goods and services purchased. It also means inflation. -The Gross nation Product (GNP) is the total output of goods and services produced by labor and property located in the U.S. -The Gross Domestic Product (GDP) is the monetary value of all the goods and services produced within the nation.

 

Monetary Policy and Fiscal Policy

For the AP related course topic on Monetary and Fiscal Policy, see the American Political Ideologies and Beliefs (APIB) module for TOPIC 4.9 Ideology and Economic Policy.

 

Watch the Crash Course video below.

 

Monetary Policy Fiscal Policy
Definition

The word “monetary” means having to do with money.

Monetary policy refers to actions central banks take to pursue objectives such as price stability and maximum employment. The central bank of the United States is the Federal Reserve System.

The word “fiscal” relates to public treasury or revenues.

Fiscal policy is a broad term used to refer to the taxing and spending policies of the federal government. (Congress and the administration)
Objective The primary objective of this policy is to maintain price stability, promote economic growth, and ensure financial stability. The major objective of fiscal policy is to influence the overall economic activity and achieve goals on economic growth, employment, and stability.
Focus Monetary policy focuses on managing money supply, interest rate and liquidity in the economy. Monetary policy focuses on economic stability. Fiscal policy focuses on managing aggregate demand and addressing economic challenges. Fiscal policy focuses on economic growth.
Authority Monetary policy decisions are made by the central bank (Federal Reserve Bank). Fiscal policy decisions are made by the government.
Tools Open market operations, reserve requirements and discount rates are main tools of monetary policies. Government spending and taxation are the main tools of fiscal policy.
Impact Monetary policy measures have an indirect and lagged impact on the economy. For instance, changes in interest rates shall take time to affect borrowing and spending decisions. Fiscal policy measures have immediate impact on the economy. For instance, government spending can lead to increased demand and job creation.
Timing Implementation of monetary policy is comparatively immediate by the central bank. Implementation of fiscal policy takes time as it requires due legislative process and budgetary constraints.
Scope The scope of monetary policy is wide and broad. It affects the overall economy. Fiscal policy can be targeted and sector-specific by addressing a specific issue.

 

IMAGES CREATED BY GAVS